Helping the States

August 3, 2010 6:10 pm

Slowly, the Senate has passed legislation to help American weather the ongoing recession. It rejected a package that included many fixes at once, but has since passed pieces, such as an extension of unemployment benefits.

Up next is an extension of higher Medicaid payments to the states, a measure that is needed to help states, like Maine, balance their budgets.

The measure, which also includes additional funding for education, has been stalled because of concerns, mainly voiced by Republicans, about adding to the federal deficit. Concerns about the growing budget deficit are understandable. But, some government spending is necessary to ensure that the slow, ongoing economic recovery continues.

Increased federal funding for the Medicaid Federal Medical Assistance Percentage, or FMAP, along with unemployment benefits, is just such spending.

This spring, both the U.S. House and Senate passed bills extending enhanced FMAP payments for six months. The higher payments were part of the American Recovery and Reinvestment Act, which aimed at pulling the economy out of recession. Most economists agree it has done this.

According to the Congressional Budget Office, increased FMAP assistance is one of the most effective ways to increase demand in the economy and, hence, to create jobs.

For this reason, Congress provided increased FMAP funds to the states in 2003 and 2009 without offsetting their cost.

After the March House and Senate votes approving a continuation of the higher FMAP payments, Maine and 32 other states included the increased federal funds in their budgets. If the FMAP funds are not forthcoming, Maine’s shortfall in the budget that began July 1 would be about $100 million.

Without the FMAP extension, Gov. John Baldacci will be forced to issue a curtailment order, which would cut state spending immediately — in areas far beyond health care. But, due to the constraints of curtailment orders, he couldn’t come up with the full amount, so a special session of the Leg-islature could be needed, which would cost the taxpayers of Maine $40,000 per day.

Worse, without the FMAP funds, health care providers would be forced to lay off employees, driving up the state’s unemployment rate and leaving some low-income families and children without medical care.

Democrats in the Senate thought they had come up with a solution with a recent proposal that offset the FMAP costs with more than $3 billion worth of cuts in defense spending. More than $100 million would have come from a Navy shipbuilding account that would have been used to pay a part of the cost of three new vessels that are to be built at Bath Iron Works. Other defense cuts would have harmed Portsmouth Naval Shipyard, the Bangor Air National Guard facility and Maine defense contractors.

Because of objections to these cuts, which would have led to job losses, other offsets have been proposed.

Whether the FMAP extension is fully funded or not, it is needed so states aren’t forced to cut programs and employees, which could further depress the economy.